The banking giant said a mortgage hedge fund that almost exclusively manages its own capital is up 16% this year. The only problem is that, under the Volcker rule, it's either got to raise a lot more money for the $395 million vehicle, get rid of it or pull its own currently very profitable capital.

The bank may seek to do the former, Bloomberg News reports, prior to the implentation of the Volcker rule, which is likely several years off.

The Mortgage/Credit Opportunity Fund was launched in 2008 by former Halcyon Asset Management principal Rajesh Kumar. Citi seeded the fund, which invests in both commercial and residential mortgage bonds, with $200 million.

The fund returned 17% in the last eight months of 2008, 23% in 2009 and 26% last year.

Editor's Note

In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…